Competitive Auction Research Articles

Evaluating the Impact of Investment Incentives: The Case of the Italian Law 488

Since the second half of the '90s, investment incentives channeled through the Law 488 have represented the main policy instrument for reducing territorial disparities in Italy. From 1996 to 2003, the total amount of funds distributed to industrial firms has accounted for 16 billions of Euro involving 27,846 financed projects mainly in the southern regions. The Law 488 allows firms willing to invest in lagged areas to receive a public subsidy that covers a fraction of the investment outlays. The incentives are assigned through competitive auctions according to pre-determined specific criteria, such as the proportion of own funds invested in the project; the number of jobs involved and the proportion of assistance sought. This paper aims at evaluating the impact of Law 488 subsidies on firms' investment. We employ a linked dataset that matches for all the firms that have applied for the grants - both subsidized firms and firms with rejected applications - the features of the Law 488 intervention with financial account data that covers both pre-intervention and post-intervention periods. The focus is to evaluate whether the Law 488 made it possible investments that otherwise would not have been done. In doing so, we compare the investment performance of subsidized firms with that of the firms that applied for the grants but were not financed. We analyze the extent to which investments have been triggered by intertemporal substitution (firms could have anticipated investment projects originally planned for the post-intervention period to take advantage of the incentives). Moreover, we study the role of cross-sectional substitution (subsidized firms could have taken some of the investment opportunities that non-subsidized firms would have got in absence of the incentives). We find that financed firms have substantially increased their investments when compared with the pool of rejected application firms. We also find evidence of intertemporal substitution: financed firms slow down significantly their investment activity in the years following the program. Finally, the impact of the L488 is more pronounced when the size of the market where the firms compete is small or when the firms are close as for their industrial distance, so to suggest that financed firms displace their non-financed competitors.

Competitive auctions

We study a class of single-round, sealed-bid auctions for an item in unlimited supply, such as a digital good. We introduce the notion of competitive auctions. A competitive auction is truthful (i.e. encourages bidders to bid their true valuations) and on all inputs yields profit that is within a constant factor of the profit of the optimal single sale price. We justify the use of optimal single price profit as a benchmark for evaluating a competitive auctions profit. We exhibit several randomized competitive auctions and show that there is no symmetric deterministic competitive auction. Our results extend to bounded supply markets, for which we also give competitive auctions.

On the profitability of reducing competition in all-pay auctions with risk averse bidders

In an all-pay auction with risk averse bidders, the seller's revenue is decreasing in the number of competitors if either the bidders are very risk averse or the distribution for the valuations attaches probability almost one to a single value.

Microeconomic Ideas, Policy Epistemologies, and the Politics of Spectrum Licensing, 1922–1997

In 1993, Congress authorized the FCC to use competitive bid auctions for the licensing of electromagnetic spectrum. To many members of the communications policy community, this policy change was decades overdue. Why did it take Congress so long to authorize spectrum auctions? Economist Thomas Hazlett has argued that policy gridlock resulting from an enduring political bargain between Congress and the broadcast industry prevented spectrum auctions from being seriously considered for decades. In this article, however, it is argued that the decision to authorize spectrum auctions is best understood when viewed through the literature on policy learning and epistemic communities. An explanation based in this body of literature posits that policy change becomes possible when a new worldview or “policy epistemology” frames the terms of debate in a manner that causes political actors to consider new alternatives.

The importance and the policy impacts of post-contractual opportunism and competition in the English and Welsh non-fossil fuel obligation

The non-fossil fuel obligation (NFFO), which consisted in a competitive auction for the deployment of renewable electricity, was the main policy for almost a decade in England and Wales. Once also used in Ireland and France, it has recently been abandoned in all countries. Many critics of the NFFO have focused on its inability to develop a national industry and promote a climate of stability among investors. This paper focuses on the incentives faced by developers bidding for a NFFO contract and shows that the low deployment rate under this scheme is likely to have been a predictable outcome of how the policy was structured and implemented rather than an unfortunate accident. The importance of the NFFO goes beyond the lack of an intense deployment of renewable electricity generation observed in the years in which the policy was on place. In fact, the NFFO has contributed to: promoting hostility against wind farms; creating false expectations of a price competitive renewable electricity sector; creating a playing field giving advantages to big players; preventing the creation of a wide renewable lobby coalition and the effective solution of planning constraints encountered by several renewable developers.

The Effect of Payoff Feedback and Information Pooling on Reasoning Errors: Evidence from Experimental Markets

A vast literature shows that individuals frequently violate normative principles in reasoning. In this paper, we report the results of four studies designed to determine if information dissemination in competitive auctions can reduce, or even eliminate, logical errors in the Wason selection task. Our results show that payoff feedback and exposure to the information flow drive the aggregate behavior toward the normative solution. We also found evidence of spillover effects from informed to uninformed traders in one-sided combinatorial auctions, as well as positive transfer effects from competitive to individual settings.

Auctions in a Two-Sided Network: The Market for Meal Voucher Services

In two-sided networks, two parties interact on a platform, caring about the numbers of subjects on the other side. A typical problem, in this context, is setting prices for network services so as to get “both side on boards”. The standard approach in the literature considers the networks ability to convince both sides to join the network, whereas this paper consider an alternative setting, in which one side determines the price balance. This case is exemplified by the market for meal voucher services in Italy, in which one agency organizes the procurement of services for the public sector, through a competitive auction. A formal model of optimal auction is illustrated and used to assess the current procurement scheme. The model reveals that the current system is inefficient and could be improved through increased flexibility and adaptation to local economic conditions.

Comments: Offshore Advances

This year marks the 50th anniversary of the first use of the jackup drilling rig, one of many advances in the second half of the 20th century that revolutionized offshore exploration and production. The jackup rig opened up newer and deeper offshore areas to production. Previously, offshore drilling was limited to primarily fixed platforms embedded in the seafloor that greatly limited mobility and were costly. The few mobile platforms operating at the time were supported by sunken refloatable vessels and were ill-equipped for use in rougher waters. According to LeTourneau Inc., a subsidiary of drilling contractor Rowan Companies, R.G. LeTourneau was the first to envision a stable and secure mobile platform that could be used in deeper waters. LeTourneau was an inventor best known at the time for pioneering advances in earth-moving machines and for being the first to develop all-wheel electric drives for heavy-duty machinery. With financial backing from Zapata Offshore Co., then headed by former U.S. President George Bush, construction on LeTourneau’s mobile offshore platform began in 1954. The result was a large, shallow-draft barge with three electromechanically operated lattice-type legs. The rig was first used offshore Port Aransas, Texas, then off the coast of Galveston, Texas, and then out in the Gulf of Mexico (GOM). Other offshore advances soon followed, including subsea blowout-preventer systems, moored drillships, and semisubmersible drilling rigs. Significant offshore innovations continue, and many of them were on display at this year’s Offshore Technology Conference (OTC) in Houston. The Spotlight on New Technology awards highlighted many of them, and others were unveiled during the conference. ExxonMobil debuted its subsea well-intervention-module technology, which offers a riserless way to deploy a seafloor coiled-tubing unit from a specially designed support vessel. That technology is now entering the detailed design and construction phase, and it will be licensed to BJ Services and Otto Candies through a joint venture. A detailed look at the subsea well-intervention system can be found in this month’s Technology Update, beginning on page 20. The mood at this year’s OTC was understandably upbeat after a year of U.S. $50/bbl oil prices. The outlook for offshore E&P appears favorable in the short term. The U.S. Minerals Management Service released a new report, noting that 15 deepwater projects were brought on stream in the GOM last year, with a record four spar units installed, including the world’s largest spar. GOM deepwater output could rise 300,000 BOPD this year and another 100,000 BOPD next year. A total of 107 deepwater projects are now on production in the GOM, accounting for approximately 922,000 BOPD and 3.9 Bcf/D of gas at the end of last year. More than 2,400 leases will expire next year and in 2007 in all areas of the GOM, which may lead to some highly competitive auction bidding. Many of those could be high-quality leases that have never been tested. With those lease expirations looming, many companies have recently increased deepwater exploratory drilling. High oil prices and renewed offshore activity are putting a strain on the drilling-rig market. Construction of new offshore jackup rigs may not be able to keep up with demand over the next decade, particularly given the attrition rate of older rigs. The pace of utilization of jackup rigs to drill in shallow waters accelerated sharply last year. A rig shortfall could be particularly detrimental to development of the GOM continental shelf, especially with a shortage of high-specification rigs needed to drill deeper zones. Others are predicting a shortage of the more technologically advanced rigs developed in the 1990s for use in deep water.

Second-best Road Pricing through Highway Franchising

This paper considers the welfare impacts of a range of franchising regimes for congestible highways. For a single road in isolation, it is shown that a competitive auction with the level of road use as the decision criterion produces the socially optimal road (in terms of capacity and toll level) as the equilibrium outcome, provided constant returns to scale characterize highway operations. The auction outperforms various alternatives, in which the bidders are asked to minimize the toll level or toll revenues, or to maximize capacity or the bid for the franchise. When second-best network aspects are taken into account, the patronage-maximizing auction is no longer optimal. When unpriced congestion on parallel capacity dominates, the second-best highway would generate losses and the zero-profit condition becomes binding. The auction produces a below-optimal capacity. When unpriced congestion on serial capacity dominates, the auction produces an above-optimal capacity.

Dworkin’s auction

Ronald Dworkin’s argument for resource egalitarianism has as its centerpiece a thought experiment involving a group of shipwreck survivors washed ashore on an uninhabited island, who decide to divide up all of the resources on the island equally using a competitive auction. Unfortunately, Dworkin misunderstands how the auction mechanism works, and so misinterprets its significance for egalitarian political philosophy. First, he makes it seem as though there is a conceptual connection between the ‘envy-freeness’ standard and the auction, when in fact there is none. Second, he fails to appreciate how idealized the conditions are that must be satisfied in order for his results to obtain. This leads him to draw practical conclusions from the thought experiment that do not follow, such as his claim that the principle of equality generates a presumption in favor of the market as a mechanism for the distribution of resources. The result is that Dworkin saddles resource egalitarianism with a set of commitments that are, in fact, inessential to that view.

How to Auction a Bottleneck Monopoly When Underhand Vertical Agreements are Possible

A seaport is awarded in a Demsetz auction to the operator bidding the lowest cargo‐handling fee. The competitive auction is irrelevant if the port operator integrates into shipping and sabotages competitors, thus providing a motive for a ban on vertical integration. The paper shows that such a ban increases welfare even when underhand agreements with shippers are possible. For this result to attain, the auction must be combined with a sufficiently high floor on the cargo‐handling fee that operators can bid in the auction. With no floor, a Demsetz auction is worse than an unregulated bottleneck monopoly.

Renewing Renewables

The current global energy and environment situation can be read as a clear indication of the need for enhanced development of renewable energy. Lessons as to how to do so can be learned from the “greenstream” developments arising from market-based environmental and energy-credit-based trading of the past decade. Public policy and project finance can be linked through carefully crafted programs leading to the creation of sustainable markets. In the renewable portfolio standards markets–where renewable energy credits (RECs) for use of green power have become, in certain European countries and a large number of U.S. states, a legally-defined commodity–programs to create “greenstreams” are being initiated by affording green developers markets or floor price guarantees for their RECs, as well as fostering private competitive auction markets for RECs.

Tilting the supply schedule to enhance competition in uniform-price auctions

Uniform-price auctions of a divisible good in fixed supply admit underpricing equilibria, where bidders submit high inframarginal bids to prevent competition on prices. The seller can obstruct this behavior by tilting her supply schedule and making the amount of divisible good on offer change endogenously with its (uniform) price. Precommitting to an increasing supply curve is a strategic instrument to reward aggressive bidding and enhance expected revenue. A fixed supply may not be optimal even when accounting for the cost to the seller of issuing a quantity different from her target supply.

On the Value of Competition in Procurement Auctions

EconometricaVolume 70, Issue 1 p. 343-355 On the Value of Competition in Procurement Auctions Olivier Compte, Olivier Compte C.E.R.A.S.-E.N.P.C., C.N.R.S., Paris, [email protected]Search for more papers by this authorPhilippe Jehiel, Philippe Jehiel C.E.R.A.S.-E.N.P.C., Paris, France, and University College [email protected]Search for more papers by this author Olivier Compte, Olivier Compte C.E.R.A.S.-E.N.P.C., C.N.R.S., Paris, [email protected]Search for more papers by this authorPhilippe Jehiel, Philippe Jehiel C.E.R.A.S.-E.N.P.C., Paris, France, and University College [email protected]Search for more papers by this author First published: 12 December 2003 https://doi.org/10.1111/1468-0262.00278Citations: 17AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat Citing Literature Volume70, Issue1January 2002Pages 343-355 RelatedInformation

The Nature and Scope of the FCC's Regulatory Power in the Wake of the NextWave and GWI PCS Cases

The Federal Communications Commission (FCC) is the administrative agency that oversees the use of the electromagnetic spectrum in the United States.' In dealing with parties licensed to use the spectrum, the FCC plays two roles. First, Congress created the FCC in 1934 as a regulator with control of the spectrum.2 In this role, the FCC allocates licenses for use of the spectrum and oversees licensees' use of these licenses in order to prevent interference.3 Second, in 1993, Congress made the FCC a creditor by authorizing the FCC to conduct competitive auctions for nonbroadcast FCC licenses.4 Congress also instructed the FCC to ensure that as part of its auction plan, it reserved certain blocks of spectrum for qualified entities, including small businesses, and made available deferred payment plans on favorable terms.5 These spectrum auctions have generated billions of dollars in revenue as wireless technologies have developed.6

Innovation, avantages concurrentiels et concurrence

Résumé Cet article présente les résultats d’une série d’expériences visant à analyser les comportements individuels d’innovation de procédés sur les marchés concurrentiels de double enchère orale continue. Le protocole des expériences consiste en une succession de périodes constituées chacune de deux phases : (1) investissements individuels en RαD et (2) marché. Les décisions d’investissement sont simultanées et les innovations non-exclusives et cumulatives. Nous étudions l’impact des anticipations relatives à la formation des prix sur le marché sur les comportements d’investissement, et l’effet de trois variables — risque, diffusion et information — sur l’efficacité des marchés et les comportements. Les résultats montrent notamment qu’en présence d’innovations endogènes, les marchés concurrentiels sont globalement efficaces. Néanmoins, la vitesse de convergence vers l’équilibre concurrentiel est réduite en période de chocs endogènes sur la fonction d’offre. Les producteurs investissent durablement en RαD et innovent même en présence d’effet de diffusion mais ne coordonnent pas efficacement leurs décisions.

Heterogeneity as a Coordination Device

A model of directed search with a finite number of buyers and sellers is considered, where sellers compete in direct mechanisms. Buyer heterogeneity and Nash equilibrium results in perfect sorting. The restriction to complementary inputs, that the match value function Q is supermodular, in addition coordinates the sellers�?? strategies. In that case, equilibrium implements positive assortative matching, which is efficient and consistent with the stable (cooperative equilibrium) outcome. This provides a non-cooperative and decentralized solution for the Assignment Game. Conversely, if buyers are identical, no such coordination is possible, and there is a continuum of equilibria, one of which exhibits price posting, another yields competition in auctions.

Transaction costs and the collection of information: presale measurement on private timber sales

Measurement efforts to reduce the uncertainty concerning the attributes of heterogeneous goods may simply redistribute wealth and result in social waste. Individuals bearing the cost of such distributional measurement have incentives to develop buying and selling practices that limit such measurement. We examine, both theoretically and empirically, the determinants of the level of distributional measurement efforts in a competitive auction framework. The empirical application, which uses a sample of private timber sales, provides strong support for the implications of the theoretical model of presale measurement.

Welcoming the Middlemen: Restricting Competition in Auctions by Excluding the Consumers

We study an auction with two distinct types of potential bidders: consumers who wish to purchase the item for their own consumption and middlemen who wish to purchase the item for the purpose of reselling it to the final consumers. Typically, the behavior of the former is studied under the private values paradigm, while the behavior of the latter is studied under the common values paradigm. We consider the possibility that both types of bidders compete in the same auction. We show that if the middlemen have access to a larger market of consumers than the auctioneer, then the auctioneer may prefer to prevent the consumers from participating in the auction.

Multiple unit auctions with strategic price-quantity decisions

I study a multiple unit auction where symmetric risk-neutral bidders choose prices and quantities endogenously. In the model, bidders (a) may place non-linear valuations on the auctioned units, and (b) bid for several units at the same price (“lumpy” bids). I characterize quantity-symmetric and strictly monotone-increasing price equilibria for discriminatory and competitive auctions, and show that (i) if quantity strategy profiles are equal across auctions revenue- equivalence holds, (ii) expected revenue is higher if bidders bid for the entire supply rather than for shares of it, and (iii) equilibrium allocations may fail to be Pareto-optimal.